Should I buy a 4-plex with foundation issues?

[Elena S.]

I have a 4-plex under contract in Kentucky. Inspection revealed major issues with the property, some of which were not disclosed: evidence of foundation problem (stair-step and horizontal cracks, bowing towards the inside of the basement, uneven floors in units); basement leaks, roof leaks, 1 furnace is putting out carbon monoxide and needs to be repaired, etc. The Seller came down in price slightly and said he is not going to do any repairs. The property is in a B-class neighborhood, built in 1920s. 2 of the 4 units are rented. Property manager doesn’t think it will be a problem to fill the other 2 units once they are rent-ready. Numbers are below:

Discounted purchase price: $182,000

Rent: $2,600  ($660 and $660 for occupied units, projecting at least $640 for each vacant unit)

Mortgage: $623

Property taxes: $231

Insurance: $171

Property Management 9%: $234

Reserves 20% (repairs, CapEx, vacancies): $520

Trash bill: $50 (tenants pay all other utilities)

Cash Flow: $771

Down payment: $45,500

Closing costs: $8,000 (verified)

Repairs: $40,000

Total cash invested: $93,500

Cash on cash return: 10%.

My goal with this property is long-term hold for cash flow. I prefer cash on cash return in double digits around 15%. I have no experience with foundation repairs.

What would you do? Should I walk away? The only money I’m losing at this point is for the inspection.